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Social Structure, Markets and Inequality

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  • Julien Gagnon
  • Sanjeev Goyal

Abstract

The interaction between social structure and markets remains a central theme in the social sciences. In some instances, markets can build on and enhance social networks' economic role; in other contexts, markets appear to be in direct competition with social networks. The impact of markets on inequality and welfare is also varying: while markets can sometimes offer valuable outside options to marginalised individuals, in other situations only well connected and better off individuals can benefit from them. In this paper, our goal is to understand the economic mechanisms that can explain these different empirical patterns. We develop a simple model that combines social networks and a mix of network-exchange and market-exchange activities. The key to understanding the empirical patterns and phenomena lies in the relation between the two activities i.e., whether they are (strategic) complements or substitutes. Social connectedness facilitates the adoption of the market action if the two activities are complements; the converse is true in case of substitutes. Inequality in a social structure is typically reinforced by the market in case the two actions are complements; the converse holds true if they are substitutes.

Suggested Citation

  • Julien Gagnon & Sanjeev Goyal, 2015. "Social Structure, Markets and Inequality," Cambridge Working Papers in Economics 1549, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1549
    Note: sg472
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    References listed on IDEAS

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    More about this item

    Keywords

    Networks; substitutes and complements; Welfare.;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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